News Release - Alberta Revenue - Heritage Fund investment income reflects volatile markets

News Release

August 27, 2002

Heritage Fund investment income reflects volatile markets

Long-term outlook remains strong, says Revenue Minister Melchin

Edmonton... The fair value of the Alberta Heritage Savings Trust Fund decreased by $582 million in the first quarter of this fiscal year. As of June 30, 2002 the fair value of the fund was $11.8 billion, down from $12.4 billion at the end of March 2002.

Minister of Revenue Greg Melchin
Download this picture (1.3 mb)

"I remain optimistic the value of the Heritage Fund will increase over time, as management of the fund remains focused on its long-term investment strategy," Alberta Revenue Minister Greg Melchin said today. "Over the long term, equity markets will outperform other fixed-income assets and short-term volatility is something that must be managed. The fact is, that during this period, the Toronto Stock Exchange dropped by 8.6 per cent, and the Standard & Poor’s 500 declined by 17.4 per cent. While this downturn in the markets has been occurring for over a year, the key here is to be patient."

A continued decline in the world stock markets, particularly in the information technology and telecommunications service sectors, combined with recent events in the U.S., have shaken investor confidence in corporate governance and corporate accounting. This has contributed to the weaker markets in this quarter. Given the significant volatility in world equity markets, fund managers will continue to monitor this activity closely over the coming months.

Indicative of the volatility in world equity markets, forecasted investment income for the fund for this fiscal year, ending March 31, 2003, has been revised from $573 million to $46 million.

All of the fund’s annual investment income is transferred to the Province’s General Revenue Fund and used to support Albertans' priorities such as health care, education, infrastructure, tax reductions and debt repayment. Over the Fund’s 26-year history, it has transferred over $25 billion to general revenues.

Overall, the fund is managed to hold roughly 50 per cent of its portfolio in public equities, ten per cent in real estate, 35 per cent in fixed income securities and five per cent in other assets. Diversification is key to its strength. The Heritage Fund’s asset mix has a conservative level of equity investments relative to other endowment funds.

"Given the overall asset mix of the fund, its managers did a good job,” said Melchin. "Alberta has some of the best fund managers in the business, both internally and externally. The long-term focus, combined with maintaining investment discipline, will ensure the fund’s security and be of greatest benefit to its shareholders - all Albertans."

As a part of its business plan, and through initiatives such as the Alberta Future Summit 2002 and the Financial Management Commission, Alberta Revenue’s review of the province’s savings policies, including the role of the Heritage Savings Trust Fund, remains ongoing.

Click here for the Alberta Heritage Savings Trust Fund First Quarter Report 2002-03.

- 30 -

For media inquiries, please contact:

Gordon Vincent
Alberta Revenue Communications
(780) 422-4591

Dial 310-0000 for toll free access outside of Edmonton.